Deficit talks break down, focus returns to House

The White House and a group of Republican senators have reached an impasse on the deficit after months of private talks, a development that raises the prospects of a budget crisis in the fall.

After a private meeting yielded no progress between eight senators and top White House officials, the two sides concluded it was time to break off discussions, officials said Thursday evening. With virtually no prospect for a bipartisan deal in the Senate, participants said the development would shift the focus back to the House, which will have to begin finding a way to avoid a government shutdown and debt ceiling crisis.

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“While it’s disappointing, it’s very evident that there’s not enough common ground to produce a result,” Sen. Bob Corker (R-Tenn.), one of the participants, told POLITICO Thursday evening. “These meetings are in essence suspended. Maybe at some point there’s an opportunity to come back to this. But we all know — based on where we are — there’s just not enough commonality really to even continue.”

The developments may lead to a repeat of the fiscal battles that dominated the last Congress and that nearly led to multiple government shutdowns, a debt default and prompted a downgrading of U.S. debt. Just like in the last Congress, the two sides remain deadlocked over the issue of tax hikes. Democrats insist that any budget agreement with entitlement reforms must also include increased revenues, which Republicans won’t do.

There had been hope that the two sides could even strike an accord on a smaller scale — to avoid the sequestration cuts that are taking effect now and will take an even bigger cut out of defense programs beginning next year. Indeed, in recent weeks, the two sides had been looking at finding a $518-billion deficit deal to change how the sequester is applied. Republicans pushed for several cuts to mandatory spending programs that had been proposed in the White House’s budget, including benefit cuts to Social Security known as “chained CPI.”

But even on that issue, there was no common ground, with the White House appearing to toughen its tone over demands for higher tax revenues in order to maintain the same level of deficit savings, sources say. The White House will entertain such entitlement cuts under a much bigger grand bargain deal that includes higher taxes.

While expectations for the meetings were low, the group of Senate Republicans had been seen as the best opportunity to strike a bipartisan deal — given the Senate has been able to bridge the partisan divide on several issues this year and that House Speaker John Boehner and President Barack Obama have long been at odds over a deficit deal.

After Obama began wining and dining senators in the spring, White House chief of staff Denis McDonough has been talking with Republican senators for months — but has had little to show for it.

The lack of any movement now underscores the major challenges that lie ahead for Congress and the White House as they attempt to extend government funding and lift the debt ceiling over the next two months.

The House and White House are tens of billions of dollars apart on the levels to set government spending in the new fiscal year, which begins Oct. 1. Both sides expect a short-term, stop-gap measure to keep the government operating past Oct. 1, but that’s not a sure bet in the House.

And in order to avoid a potential economic calamity in mid-October, Obama has demanded a clean debt-ceiling increase with no strings attached. But Boehner has insisted on cuts and budget reforms to accompany the increase in the national borrowing limit.

The chances for a budget crisis in the fall now could imperil other aspects of the Obama agenda, including immigration reform.

“We appreciated the meeting, which continued the series of candid — and helpful — exchanges,” a White House official said in a statement, which noted that they also discussed Syria. “On matters related to the budget, the president has always been clear that closing tax loopholes that benefit the wealthy had to be part of any big deal. That’s been clear for several years.”

A Senate aide said the parties “are very far apart and not finding common ground.”

“Talk for a big, bold, long-term, debt-reduction plan is not happening,” the aide said. The White House is “only talking short-term and sequester now.”